SVB’s Former Owner May Have to Wait to Claim $2 Billion

SVB Financial wants to collect $2 billion it is owed. The FDIC says: Wait your turn.

The company, which owned the failed Silicon Valley Bank, hopes to recover $2 billion in deposits held in receivership by the Federal Deposit Insurance Corp. (FDIC).

But according to bankruptcy court papers filed by the FDIC Wednesday (May 3), SVB bondholders can only recover the cash via the receivership process.

“Although the FDIC approved additional funding under the systemic risk exception to protect SVB’s depositors, nothing that has transpired since March 10 altered the debtor-creditor relationship that exists” between the bank’s one-time parent and the FDIC, agency attorneys said in the court filing.

SVB Financial Group declared bankruptcy in March, saying it hoped to use the process to preserve value as it looks for alternatives for its other businesses, including SVB Securities and SVB Capital, which were not included in the Chapter 11 filing.

In the Wednesday court filing, FDIC attorneys argue that once the agency claimed control of SVB, it also took ownership of all deposits in the bank. SVB Financial is “nothing more or less than a promise to pay” from the bank.

SVB Financial’s bankruptcy declaration came days after the FDIC took control of Silicon Valley Bank following a run on deposits that kicked off an ongoing banking crisis.

The effects of that collapse continue to reverberate. For example, Thursday (May 4) saw Goldman Sachs reveal in a regulatory filing that it was cooperating with investigators in a probe into its work with Silicon Valley Bank.

The week began with another troubled lender, First Republic Bank, being acquired by J.P. Morgan Chase after it was also seized by the FDIC.

Since then, shares of other regional banks have begun to slide as well, among them PacWest Bancorp, which is reportedly considering a sale, a breakup or a capital raise.

“The bank has not experienced out-of-the-ordinary deposit flows following the sale of First Republic Bank and other news,” PacWest said Thursday in a bid to reassure investors. “Our cash and available liquidity remains solid and exceeded our uninsured deposits.”

Also working to assuage fears was Western Alliance, a regional banker that issued a statement Thursday blasting a Financial Times report that said it was considering a sale of its own.

The bank called the story irresponsible and indicated it was considering legal action, arguing it was the work of short sellers trying to drive down its value.